Nobody ever said riding a (gold) bull market was easy.  Unless you’re prepared to buy, close your eyes, and come back years later, then I’m afraid we have to take the good with the bad. 

The Investor Cycle is just oversold, overextended, and is now throwing off buy signals that have worked throughout this bull market.  This is the 2nd straight weekly close below the Bollinger Bands, the first time ever for this bull market.  The COT report is as constructive as its been in well over a year.  Because in the short run markets can “do as they please”, we know a slightly lower low can never be ruled out.  But a sustained drop from this point just looks extremely unlikely. See Glossary for terms and acronyms

Like past weeks, sentiment just continues to deteriorate further than anyone thought possible.  I know sentiment is not a perfect timing tool, but the depths of despair shown by gold-bugs is very important.  Please keep this chart in mind when viewing the longer and more dominant Cycles presented further in this report.  With sentiment at record lows, it makes it difficult to support a scenario where gold falls much further over a longer period of time.

This next chart is the most important chart this week.  On the Daily, Weekly, and Monthly levels, we’re now at that “show me the money” moment.  Basically the 12 year bull market as we know it is being tested right here.  How it responds in March will likely reveal exactly how this bull market will unfold over the next 1-2 years.  

Firstly, the 12 year secular bull market channel on a monthly chart is being challenged.  A break below this lower channel opens the floodgates to all sorts of bearish scenarios.  A channel breakdown alters the landscape and removes the “known boundaries” of this great bull market.

The monthly Bollinger Bands are also being tested for the first time of this bull market.  This is a testament to the length of this consolidation.  This 18 month consolidation and basing period has reduced volatility to the lowest levels of this bull market.   The result being Bollinger Bands that have tightened to the narrowest levels ever, and this indicates that a massive multi-month move is imminent.

February marked 5 straight declining months for gold, yet another bull market record.  If the bull market channel is to break, then we would see a 6th straight declining month, technical indicators and oscillators reaching unimaginable levels, and sentiment consistent with “secular bear markets”. 

In short, right here and now, this is either the dawn of a new multi-month rally, or it’s the start of a breakdown to indeterminable levels, over many more Investor Cycles.  

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The most significant development was the bullish reversal exhibited by the PM’s today.  Today’s move occurred on very heavy volume and was the largest gaining day since September 13th,  2012.  More importantly, it came on a day where the morning session was printing fresh new 4 year lows. 

A good day for the miners today, but a 4% rally off such lows is not going to fool anyone.  I know it’s hard to get excited because its been a brutal 24 week crash for the miners.  The past 24 week decline is riddled with 1 to 5 day rallies that only served as fodder for the aggressive short traders.  And I believe this is exactly the point now. This is exactly how bear markets end, they surge out of nowhere but just keep going and going.  The numerous counter trend tops over the past 24 weeks have served to crush our sentiment and alter our expectations.  We’ve become numb and immune to the declines, to the point where we just subconsciously expect it.  Of course it does not need to be now, but the conditions for that major low are very firmly in place.

I’m not making a prediction here; I’ve stayed away from doing so during this 24 week drop and its served me well.  That’s because no matter how bullish this reversal appears, the trend on the chart is still down.  Whatever the outcome, this move should have some legs and be good for a move back to the $40 level, even if we’re eventually headed for further lows.

But let me end my Gold Cycle analysis by saying that I’ve never been more confident in a PM Low throughout this past 24 weeks, as I am now.  This type of “hammer” reversal on the weekly chart, on heavy volume (while just having made 4 year lows), is just purely bullish.  When this is coupled with the lengthy list of Investor Cycle Low readings I presented in the weekend report, it gives me reason to be optimistic.  The timing of this move is also “conveniently” very favorable, as the Gold Cycle should begin to rally now if February marked that major low.  So the setup is now in place, but everyone has lost faith in the miners as they repeatedly "cry wolf”.  I’m not so sure they will this time.     

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